The Predictive Power of Investor Sentiment on US Equity Market Performance

2021 ◽  
pp. 3-21
Author(s):  
Matthew Steeves ◽  
Son Nguyen ◽  
John Quinn ◽  
Alan Olinsky
Keyword(s):  
Predictive Power ◽  
Market Performance ◽  
Investor Sentiment ◽  
Equity Market

scholarly journals Time-Varying Risk Aversion and the Profitability of Carry Trades: Evidence from the Cross-Quantilogram

Economies ◽  
2020 ◽  
Vol 8 (1) ◽  
pp. 18
Author(s):  
Riza Demirer ◽  
Rangan Gupta ◽  
Hossein Hassani ◽  
Xu Huang
Keyword(s):  
Risk Aversion ◽  
Predictive Power ◽  
Investor Sentiment ◽  
Time Varying ◽  
Carry Trade ◽  
Currency Markets ◽  
High Quantiles ◽  
Predictive Role ◽  
The Cross ◽  
Directional Predictability

This paper examines the predictive power of time-varying risk aversion over payoffs to the carry trade strategy via the cross-quantilogram methodology. Our analysis yields significant evidence of directional predictability from risk aversion to daily carry trade returns tracked by the Deutsche Bank G10 Currency Future Harvest Total Return Index. The predictive power of risk aversion is found to be stronger during periods of moderate to high risk aversion and largely concentrated on extreme fluctuations in carry trade returns. While large crashes in carry trade returns are associated with significant rises in investors’ risk aversion, we also found that booms in carry trade returns can be predicted at high quantiles of risk aversion. The results highlight the predictive role of extreme investor sentiment in currency markets and regime specific patterns in carry trade returns that can be captured via quantile-based predictive models.

What Does the Individual Option Volatility Smirk Tell Us About Future Equity Returns?

2010 ◽  
Vol 45 (3) ◽  
pp. 641-662 ◽  
Author(s):  
Yuhang Xing ◽  
Xiaoyan Zhang ◽  
Rui Zhao
Keyword(s):  
Predictive Power ◽  
Equity Market ◽  
Equity Returns ◽  
Cross Sectional ◽  
Put Options ◽  
Negative News ◽  
Informed Traders ◽  
The Individual

AbstractThe shape of the volatility smirk has significant cross-sectional predictive power for future equity returns. Stocks exhibiting the steepest smirks in their traded options underperform stocks with the least pronounced volatility smirks in their options by 10.9% per year on a risk-adjusted basis. This predictability persists for at least 6 months, and firms with the steepest volatility smirks are those experiencing the worst earnings shocks in the following quarter. The results are consistent with the notion that informed traders with negative news prefer to trade out-of-the-money put options, and that the equity market is slow in incorporating the information embedded in volatility smirks.

Small investors’ internet sentiment and return predictability

2019 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Antti Klemola
Keyword(s):  
Investor Sentiment ◽  
Equity Market ◽  
Individual Investors ◽  
Linear Regression Models ◽  
Internet Search ◽  
Search Activity ◽  
Market Returns ◽  
Content Type ◽  
Vector Autoregressive ◽  
Bear Market

Purpose The purpose of this paper is to propose a novel and new direct measurement of small investor sentiment in the equity market. The sentiment is based on the individual investors’ internet search activity. Design/methodology/approach The author measures unexpected changes in the small investor sentiment with AR (1) process, where the residuals capture the unexpected changes in small investor sentiment. The author employs vector autoregressive, Granger causality and linear regression models to estimate the association between the unexpected changes in small investor sentiment and future equity market returns. Findings An unexpected increase in the search popularity of the term bear market is negatively associated with the following week’s equity market returns. An unexpected increase in the spread (the difference in popularities between a bull market and a bear market) is positively associated with the following week’s equity market returns. The author finds that these effects are stronger for small-sized companies. Originality/value By author’s knowledge, the paper is the first that measures the small investor sentiment that is based on the internet search activity for keywords used in the American Association of Individual Investor’s (AAII) survey questions. The paper proposes an alternative small investor sentiment measure that captures the changes in small investor sentiment in more timely fashion than the AAII survey.

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